there is such a steep learning curve when it comes to being an entrepreneur, that when business owners receive interim financial statements from the Edmonton bookkeeping company they often do not know what to do with that information. Business owners often get into the business that therein, because they are good at providing the product or service that their business sells, but being great at what their business does not necessarily make them great at running a business. Therefore, entrepreneurs should learn as early as they can in their business on how to read and understand financial statements to be able to make better financial decisions in their business, that not only can help them avoid making poor financial decisions, but can help them be proactive and grow their business.
The very first thing that entrepreneurs should learn when they receive these interim financial statements from their Edmonton bookkeeping company, is what they are. Entrepreneurs should expect to receive a balance sheet and income statement from their bookkeeper. Not only should they know what they are getting, but how often they should expect to get them. At a very minimum, entrepreneurs should be getting these reports once a month. A great Edmonton bookkeeping company such as always bookkeeping will send these reports every two weeks to their business owners. And the reason is that business owners should get into the habit of reviewing these reports every time they are about to make a financial decision. When entrepreneurs pay their staff every two weeks, they should be reviewing their balance sheet and income statement first before running payroll to ensure that they have the money to make that payment. Therefore great bookkeepers will send out these reports every two weeks. However, if an entrepreneur is not able to receive them at least once a month, they should move to a new bookkeeper.
Once an entrepreneur has received the statements, the next thing that they need to understand is what to read first. Entrepreneurs often do not understand the balance sheet, but they have a better understanding of their income statement, I will use the income state meant to make their financial decisions. However, business owners should learn how to understand the balance sheet first, because it can help them minimize errors on both financial statements. An entrepreneur will verify the accuracy of the reports, is by asking their Edmonton bookkeeping company to give them their balance sheets in a six-month comparative statement. This way, an entrepreneur can see several months of reports at a time, which can help them find inconsistencies in months. If they do see any inconsistencies they should see if there is an explanation to those inconsistencies such as making a purchase in one month or having an extremely low volume month due to the seasonality of their business. If there is no explanation for those inconsistencies, business owners should work with their Edmonton bookkeeping company to see if there are any errors. If there are, they should then look at the income statement to see if the errors carried over to affect that statement.
Helping entrepreneurs understand how to read the financial statements given to them by their Edmonton bookkeeping company can help entrepreneurs significantly increase the success of their business. The reason is that when entrepreneurs do not understand their business finances and they make financial decisions, they could be potentially putting their business at risk with a poor business decision. Instead, when they’re able to review the statements intelligently, they will be able to use that information to make better financial decisions.
Once they have received the balance sheet and income statement from their Edmonton bookkeeping company, and have verified the accuracy of the information, the next thing an entrepreneur should do is review the assets, liabilities, and equity on their balance sheet. Those three categories are going to help an entrepreneur gauge the overall financial health of their business. But they are going to want to do is look at the assets compared to liabilities and verify that the assets are greater than liabilities. If not, then an entrepreneur might want to increase their marketing efforts or engage in some revenue-generating activities to bring it up. If an entrepreneur looks at the asset section and notices that not only the cash is low and to the Accounts Receivable are low, that is going to indicate a future cash flow problem. By being proactive and increasing their revenue, obtaining financing from a financial institution, or making plans to personally contribute to the finances of the business to minimize that cash flow problem, this is one way that an entrepreneur can be proactive to avoid financial problems.
The next thing an entrepreneur can do is to look at the income statement from their Edmonton bookkeeping company. They should see in this report that there is the revenue, cost of goods sold and expenses. It should all fit onto a single page. This is done on purpose to help make the report easy to read and easy to understand. Business owners will notice that their expenses to be split into several categories and will be very simplified. This is to make them easier to read so that they can make better decisions and easier to be consistent. For example, if an entrepreneur has split their office supplies into several categories such as paper, printing supplies, bathroom supplies, writing implements, not only will this make it very difficult for an entrepreneur to understand how to minimize their office expenses, but it might make it inconsistent as well. From month-to-month bullet, entrepreneur remember that paper should go in the printing supplies category for example.
The expenses on the income statement will also be numerically descending order so that the highest expenses end up at the top of the list. This is also done on purpose by their Edmonton bookkeeping company so that entrepreneurs can see very easily what they need to spend time on to minimize expenses. Spending time at the top of the list can have the greatest impact on the bottom line of the business.